1994-VIL-64-ITAT-CHN

Equivalent Citation: TTJ 051, 018,

Income Tax Appellate Tribunal COCHIN

Date: 16.08.1994

INDO MARINE AGENCIES (KERALA) PVT. LTD.

Vs

ASSISTANT COMMISSIONER OF INCOME TAX.

BENCH

Member(s)  : G. SANTHANAM., Smt. P. K. AMMINI.

JUDGMENT

This is an appeal by the assessee.

2. The assessee is a private limited company with previous year ending on 30th Sept., 1987 in relation to the asst. yr. 1988-89. For this assessment year the assessee did not file a return of income within the time allowed under s. 139(1) of the IT Act, 1961; nor did it file the return of income within the time allowed pursuant to a notice issued under s. 139(2) dt. 16th Sept., 1988. It did not also comply with the notice issued under s. 142(1) dt. 8th March, 1989. The Assessing Officer passed a note in the record sheet on 31st Oct., 1989 as under:

"Return of income not yet filed. There is no taxable income from 1984-85 onwards. Assessment may be closed as N.A. for statistical purposes."

The above note was communicated to the assessee and there is no dispute about this fact. However, on 15th March, 1990 the assessee filed a return disclosing loss of Rs. 59,02,550 as under:

Pursuant to the filing of the return as above, the Assessing Officer in his office note dt. 9th Jan., 1992 decided to reopen the assessment in the following terms:

"In this case the assessee-company failed to file a return of income for asst. yr. 1988-89 and, therefore, notices under s. 139(2) and 142(1) were issued. On 31st Oct., 1989, the assessment was closed as N.A. A return of income was filed by the assessee-company on 15th March, 1990, which is delayed and considered non est. In view of the return filed, there is information to the effect that income assessable under the provisions of s. 115J of the Act, has escaped assessment. I am, therefore, satisfied that for the reason stated above, this is a fit case for action under s. 147(b) of the IT Act. Issue notice under s. 148.

Sd/-

9th Jan., 1992."

Notice under s. 148 was issued on 15th Jan., 1992. It was the assessee's contention that in view of the heavy loss to be carried forward from the previous years, which is to be set off against the profits of the asst. yr. 1988-89 there will be nil income and no tax was payable under s. 115J of the IT Act and even if income under s. 115J was calculated from the book profits, in view of the deduction to be allowed under s. 80HHC to the tune of Rs. 12,64,771 to be allowed in arriving at the income under s. 115J, there would be no income exigible to tax and hence the reassessment proceedings should be dropped. The Assessing Officer negatived the claim of the assessee as follows:

"The argument of Sri P.E. Peethambaran is considered. According to s. 115J of the IT Act, the book profit of the company is considered for calculation of income to be taxed under this section. Amount of loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year is in view of provisions of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, 1956. According to s. 205(1)(b) of the Companies Act, if the company has incurred any loss in the previous financial year or the years then the amount of loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less shall be set off against the profit of the company. Hence, the carried forward loss or the carried forward depreciation whichever is less is to be deducted from the book profit. Therefore, the claim of the assessee that the previous year losses to be set of against the book profit is not sustainable as the amount of depreciation carried forward is to the tune of Rs. 5,18,387 which can only be allowed as set off against the book profit shown by the assessee."

As for the deduction claimed under s. 80HHC from the book profits, the Assessing Officer held that such deduction would be available for and from the asst. yr. 1989-90 and not before. In this view of the matter, he computed the book profit as under:

3. The assessee filed an appeal objecting to the reassessment proceedings as well as the quantum of income as determined by the Assessing Officer. The learned CIT(A) after adverting to the facts of the case held that no assessment had been made even though notices under s. 139(2) and 142(1) were issued to the assessee. Even after filing the return by the assessee on 15th March, 1990 no assessment order was passed on the basis of the return and, therefore, the Assessing Officer was justified in reopening the assessment in terms of cl. (b) of Expln. 2 of s. 147. Further the learned CIT(A) held that from the facts it was seen that the profits chargeable to tax under the provisions of s. 115J had escaped assessment and the argument of the assessee that the "deemed income" under the aegis of s. 115J cannot be equated to the real income that has escaped tax was negatived by the learned CIT(A).

4. Another contention of the assessee was that the amended provisions of s. 147 came into force w.e.f. 1st April, 1989 and, therefore, Expln. 2 to s. 147, as introduced w.e.f. 1st April, 1989, cannot be availed of. This contention was rejected by the CIT(A) on the ground that the provisions of s. 147 were only procedural provision and, therefore, retrospective in effect.

5. Turning to the argument of the assessee that deduction under s. 80HHC should have been allowed from the book profits, the learned CIT(A) held that it was so only for and from the asst. yr. 1989-90 and not for the asst. yr. 1988-89.

6. Dealing with the assessee's contention that the Assessing Officer erred in quantifying the amount of depreciation to be adjusted against the book profits in terms of s. 205(2)(b) of the Companies Act, 1956, the learned CIT(A) has upheld the computation with the remarks that he had gone through it and found it in order. He saw no merit in the contention of the assessee that the sale value of capital asset amounting to Rs. 66,242 should be excluded from the book profits. Thus, he dismissed the appeal. The assessee is in second appeal, and assails the reassessment proceedings.

7. The contentions of Sri C.K. Nair, the learned counsel for the assessee are that having initiated the proceedings under s. 139(2) on 16th Sept., 1988, and having pursued the proceedings by the issue of notice under s. 142(1) dt. 8th March, 1989, the assessment should have been completed at least under s. 154 of the IT Act in view of the failure of the assessee to furnish the return at the material point of time. This has not been done at any rate and the notings in the order sheet dt. 31st Oct., 1989, that the assessment may be closed as 'N.A.' for statistical purposes cannot be construed as an order of the assessment; nor such notings were communicated to the assessee. Thus, there has been no assessment. In the normal course, the assessment for the asst. yr. 1988-89 would be barred by limitation only on 31st March, 1991. In the meanwhile, the assessee suo moto had furnished a loss return on 15th March, 1990. No action was taken on the loss return and no assessment order was passed within the time limit prescribed under s. 153 of IT Act. In such circumstances, the reassessment proceedings initiated long after the assessment was barred by limitation, are not sustainable in law and he relied on the decision of the Patna High Court in C.M. Rajgharia & Anr. vs. ITO & Ors. (1975) 98 ITR 486 (Pat). Though s. 147 is only a machinery section, it does not relate to procedure pure and simple but it effects also the substantive right or protection given to the assessee by ensuring that he is not subjected to reassessment except only under certain conditions and within a certain time as has been held by the Calcutta High Court in Calcutta Discount Co. Ltd. vs. ITO (1952) 21 ITR 579 (Cal). He further submitted that so long as the assessment proceedings were pending against the assessee and no final order had been passed thereon, it would be premature to suggest that income of the assessee had escaped assessment and, therefore, no action can be taken under s. 147. In this connection, he relied on the decision of the Supreme Court in Ghanshyamdas vs. Regional Asstt. Commissioner of Sales-tax & Ors. (1964) 51 ITR 557 (SC) and of the Allahabad High Court in S.P. Kochar vs. ITO (1983) 37 CTR (All) 49 : (1984) 145 ITR 255 (All). For the proposition that a mere 'N.A.' will not tantamount to passing an order of assessment, he relied on the decision of the Supreme Court in CIT vs. M.K.K.R. Muthukaruppan Chettiar (1970) 78 ITR 69 (SC).

8. Sri C. Abraham, the learned senior Departmental Representative took us through the facts of the case and the notings found in the order sheet dt. 31st Oct., 1989 and submitted that the entry in the order sheet amounted to the Assessing Officer coming to the conclusion that there was no income liable to tax and, therefore, it partakes of the nature of an assessment having been made though the same was not communicated to the assessee. He also placed reliance on the decisions of the Supreme Court in CIT vs. Bidhu Bhusan Sarkar (1967) 63 ITR 288 (SC) and Esthuri Aswathiah vs. ITO (1961) 41 ITR 539 (SC). Sri Abraham further submitted that even if it is held that the order sheet entry dt. 31st Oct., 1989, does not amount to an assessment order, still the return filed by the assessee on 15th March, 1990 disclosing losses is not est in the eye of law in view of the provisions of s. 139(9) of the IT Act. Thus, the income has escaped assessment and as a result the reassessment proceedings are justified. He also relied on the order of the CIT(A) in support of the initiation of the proceedings under s. 147 as amended w.e.f. 1st April, 1989.

9. Having regard to rival submissions, we uphold the reopening of the assessment under the amended provisions of s. 147. In spite of the issue of notice under s. 139(2) dt. 16th Sept., 1988 and the notice issued under s. 142(1) dt. 8th March, 1989, the assessee did not furnish the return and did not comply with the terms of the notices. Such default on the part of the assessee should lead to an assessment under s. 144. Sri Nair's contention is that there was no assessment under s. 144, but we do not agree with his contention. The reason is that if regard is had to the matters mentioned in the order-sheet entry dt. 31st Oct., 1989, it cannot be said that the entry represented merely termination of the proceedings initiated by the Assessing Officer. The relevant entry is as follows:

"Return of income not yet filed. There is no taxable income from 1984-85 onwards. Assessment may be closed as N.A. for statistical purposes."

From the above it will be evident that the Assessing Officer had closed the assessment as 'N.A.' in view of the fact that the assessee did not have taxable income from 1984-85 onwards. Thus, there has been application of the mind on the part of the Assessing Officer to the past records of the assessee even though no return of income was pending before him. As a result of the past history of the assessee from 1984-85 onwards, he had came to the conclusion that there was no taxable income and closed the assessment as 'N.A'. Thus, the impugned entry, in our considered opinion, will amount to an order under s. 144 of the IT Act. The mere fact that it was not communicated to the assessee will not make such an assessment recorded in the order illegal as has been held in the case of Sivalingam Chettiar vs. CIT (1966) 62 ITR 678 (Mad), Commr. of Agrl. IT vs. K.M. Parameswara Bhat (1974) 97 ITR 190 (Ker) and CIT vs. Trustees of H.E.H. The Nizam's Second Supplemental Family Trust (1984) 40 CTR (AP) 96 : (1985) 151 ITR 562 (AP). The Supreme Court in CIT vs. Bidhu Bhusan Sarkar held that the endorsement filed may amount to dropping of the proceedings or disposal of the proceedings and that would not bar further proceedings under s. 147. The other cases relied on by the learned senior Departmental Representative support the action of the Assessing Officer in invoking the provisions of s. 147. Thus we reject the preliminary objection of Sri Nair, the learned counsel for the assessee.

10. Sri Nair further contended that the amended provisions of s. 147 which came into force w.e.f. 1st April, 1989 will not be applicable to the asst. yr. 1988-89. We are unable to accept this contention for the reason that s. 147 is only a machinery provision and when the Assessing Officer reopened the assessment by notice dt. 9th Jan., 1992, the amended provisions of s. 147 had come into force. Even if the reopening is tested under the old provisions of s. 147, yet, the return furnished by the assessee on 15th March, 1990 after the closing of the assessment as 'N.A.' as evidenced by the order sheet entry dt. 31st Oct., 1989, would constitute information within the meaning of the predecessor s. 147(b) of the IT Act. At that point of time, when the notice was issued the time-limit for reopening the assessment even under the predecessor section had not expired. Hence no vested right had accrued to the assessee by the time when action was initiated under the amended provisions though in the reason recorded reference had been made only to the provisions of s. 147(b) of the Act.

11. The learned CIT(A) has sustained the reassessment in the terms of cl. (b) of Expln. 2 to s. 147 as it stands w.e.f. 1st April, 1989. In view of our reasoning that the order-sheet entry constituted an assessment under s. 144, we hold that the reassessment proceedings were validly initiated not under cl. (b), but under cl. (c) of Expln. 2 to s. 147. Thus, we uphold the reassessment proceedings.

12. Turning to the merits of the case, one of the disputes is with regard to the quantum of depreciation that was deducted from the net profit as disclosed in the P&L a/c of the assessee-company with reference to cl. (iii) of Expln. 2 to s. 115J. The Assessing Officer quantified the amount of be allowed in a sum of Rs. 5,18,387 under the said clause as follows: .

The learned CIT(A) saw no reason to interfere with the quantification as done by Assessing Officer.

13. The assessee's contentions are two-fold before us, viz.,

(a) The amount of loss or the amount of depreciation whichever is less in respect of the years in which the loss was incurred, if those years fell after the commencement of the Companies (Amendment) Act, should be taken into account for adjustment against the profits of the impugned assessment year and there is no justification to start the computation from the asst. yr. 1975-76. The actual computation should start from the asst. yr. 1970-71 onwards; and

(b) The authorities erred in adjusting the loss or depreciation whichever is less against the profits in relation to the asst. yrs. 1981-82 and 1982-83 in giving effect to the provisions of s. 115J of the IT Act for the asst. yr. 1988-89. The learned Departmental Representative relied on the Circular No. 495 dt. 22nd Sept., 1987 [(1988) 67 CTR (St) 1 : (1987) 168 ITR (St) 87 (at p. 110)] to support the computation of the Assessing Officer. In order to appreciate the dispute it is but necessary to reproduce the Circular and also the provisions of s. 205(1) & (2) of the Companies Act, 1956. The Circular reads as follows:

"New provisions to levy minimum tax on "book profit" of certain companies:

36.1 It is an accepted canon of taxation to levy tax on the basis of ability to pay. However, as a result of various tax concessions and incentives certain companies making huge profits and also declaring substantial dividends, have been managing their affairs in such a way as to avoid payment of income-tax.

36.2 Accordingly, as a measure of equity, s. 115J has been introduced by the Finance Act. By virtue of the new provisions, in the case of a company whose total income as computed under the provisions of the IT Act, is less than 30 per cent of the book profit computed under the section, the total income chargeable to tax will be 30 per cent of the book profit as computed. For the purposes of s. 115J, book profits will be the net profit as shown in the P&L a/c prepared in accordance with the provisions of Sch. VI to the Companies Act, 1956, after certain adjustments. The net profit as above will be increased by income-tax paid or payable or the provision thereof, amount carried to any reserve, provision made for liabilities other than ascertained liabilities, provision for losses of subsidiary companies, etc., if the amounts are debited to the P&L a/c. Liabilities relating to expenditure which has been incurred or which has accrued in respect of expenses which are otherwise deductible in computing income will not be added back. The amount so arrived at is to be reduced by—

(i) amounts withdrawn from reserves if any, such amount is credited to the P&L a/c

(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the P&L a/c, and

(iii) the amount of any brought forward losses or unabsorbed depreciation whichever is less as computed under the provisions of s. 205(1)(b) of the Companies Act, 1956, for the purposes of declaration of dividends. Sec. 205 of the Companies Act requires every company desirous of declaring dividend to provide for depreciation for the relevant accounting year. Further, the company is required under s. 205 to set off against the profit of the relevant accounting year, the depreciation debited to the P&L a/c of any earlier year(s) or loss whichever is less.

36.3 Sec. 115J, therefore, involves two processes. Firstly, an assessing authority has to determine the income of the company under the provisions of the IT Act. Secondly, the book profit is to be worked out in accordance with the Explanation to s. 115J(1) and it is to be seen whether the income determined under the first process is less than 30 per cent of the book profit. Sec. 115J would be invoked if the income determined under the first process is less than 30 per cent of the book profit. The Explanation to sub-s. (1) of s. 115J gives the definition of the "book profit" by incorporating the requirement of s. 205 of the Companies Act in the computation of the book profit. Brought forward losses or unabsorbed depreciation whichever is less would be reduced in arriving at the book profits. Sub-s. (2), however, provides that the application of this provision would not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses to the extent not set off, and deduction under s. 80J, to the extent not set off as computed under the IT Act.

36.4 In the case of a tea company where income is derived from the sale of tea grown and manufactured by the seller, only 40 per cent of such income is liable to tax under r. 8 of the IT Rules, 1962, 60 per cent of the income, which is disregarded for the purposes of taxation is considered to be agricultural income and is, therefore, exempt under the provisions of Chapter III. The net profit determined in accordance with Sch. VI to the Companies Act, 1956, has to be adjusted, inter alia in accordance with cl. (f) and sub-cl. (ii) of the Explanation to s. 115J(1). In the case of the tea companies, the book profit should be computed by making all the adjustments referred to in the Explanation. However, no adjustment in respect of cl. (f) and sub-cl. (ii) of the Explanation is to be made for the agricultural income earned by tea companies from tea business. 40 per cent of the adjusted amount arrived at in this manner will be the book profit of the tea company in accordance with r. 8 of the IT Rules.

36.5 The following examples illustrate how the amended provisions relating to the new section will be applied:

NEW COMPANIES

APPLICATION OF SECTION 115J

Assessable income 30% of Rs. 6 lakhs, i.e. Rs. 1.8 lakhs."

Thus in the above example, the loss or depreciation whichever is less is first adjusted against past profits before depreciation. The provisions of s. 205(1) & (2) of the Companies Act, 1956 are as follows:

"DIVIDENDS AND MANNER AND TIME OF PAYMENT THEREOF

205 Dividend to be paid only out of profits.—

(1) No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-s. (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government:

Provided that—

(a) if the company has not provided for depreciation for any previous financial year or years which falls or fall after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), it shall, before declaring or paying dividend for any financial year provide for such depreciation out of the profits of that financial year or out of the profits of any other previous financial year or years;

(b) if the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of sub-s. (2) or against both:

(c) the Central Government may, if it thinks necessary so to do in the public interest, allow any company to declare or pay dividend for any financial year out of the profits of the company for that year or any previous financial year or years without providing for depreciation:

Provided further that it shall not be necessary for a company to provide for depreciation as aforesaid where dividend for any financial year is declared or paid out of the profits of any previous financial year or years which falls or fall before the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).

(2) For the purpose of sub-s. (1), depreciation shall be provided either—

(a) to the extent specified in s. 350; or

(b) in respect of each item of depreciable asset, for such an amount as is arrived at by dividing ninety-five per cent of the original cost thereof to the company by the specified period in respect of such asset; or

(c) of any other basis approved by the Central Government which has the effect of writing off by way of depreciation ninety-five per cent of the original cost to the company of each such depreciable asset on the expiry of the specified period; or

(d) as regards any other depreciable asset for which no rate of depreciation has been laid down by this Act or any rules made thereunder on such basis as may be approved by the Central Government by any general order published in the Official Gazette or any special order in any particular case:

Provided that where depreciation is provided for in the manner laid down in cl. (b) or cl. (c), then, in the event of the depreciable asset being sold, discarded, demolished or destroyed the written down value thereof at the end of the financial year in which the asset is sold, discharged, demolished or destroyed, shall be written off in accordance with the proviso to s. 350."

14. The salient features of s. 205 of the Companies Act, 1956 are as follows:

I. Dividends can be declared for any financial year only out of the profits of that year or out of the profits of any previous financial year or years. For example for the financial year 1987-88 dividends can be declared out of the profits of the financial year 1987-88 or out of the profits of the previous financial years, such as, 1986-87, 1985-86 and 1983-84. However, before declaring dividends, depreciation in accordance with the provisions of sub-s. (2) should be provided against the profits of that financial year or against the profits of any previous year or against the profits of any previous financial year, as the case may be.

II. Under cl. (a) of the proviso to s. 205(1), if the company had not provided for depreciation for any previous financial year or years, after the commencement of the Companies (Amendment) Act, 1960, but desires to declare dividend for any financial year, it should provide for such depreciation out of the profits of that financial year or out of the profits of any other previous financial year or years. In the above event, if the company had not provided for depreciation, say, for the financial years 1979- 80 and 1980-81, before declaring dividend for the financial year 1987-88, it should provide for depreciation in respect of the years 1980-81 and 1981-82 against the profits of the financial year 1987-88 or against the profits of the financial years 1986- 87, 1985-86 and 1983-84.

III. In terms of cl. (b) of the proviso, if the company has incurred loss in any previous financial year or years, after the commencement of the Companies (Amendment) Act, 1960, but desires to declare dividends out of the profits of any financial year, it has two options, viz.,

(i) to set off the amount of loss or the amount of depreciation, whichever is less, incurred by the company after the commencement of the Companies (Amendment) Act, 1960, against the profits of that financial year from out of which dividend is proposed to be declared; or

(ii) To set off the amount of loss or the amount of depreciation whichever is less against the profits of any previous financial year or years. In both cases, the amount of depreciation must be computed in accordance with the provisions of sub-s. (2). In both cases, depreciation for the relevant year should be provided in accordance with the provisions of sub-s. (2) of the Companies Act. In the above example, let it be assumed that the decision is to declare dividends out of the profits of the financial year 1987-88. Let it be also assumed that the company had suffered losses after charging depreciation in its accounts from the commencement of the Companies (Amendment) Act, 1960, except in relation to the financial years 1983-84, 1985-86 and 1986-87. In such an event, if the company desires to declare dividends in respect of the financial year 1987-88, it has, under the first option, to set off the loss or depreciation, whichever is less, from the commencement of the Companies (Amendment) Act, against the profits of the financial year 1987-88. Under the second option, it can also set off the loss or depreciation whichever is less in respect of the years after the commencement of the Companies (Amendment) Act in which the loss was incurred against the profits of the previous financial years, viz., 1983-84, 1985-86 and 1986-87. The illustration given in the Board's Circular cited supra, follows the second option, on which the Assessing Officer's working is based. The assessee relies on the computation in accordance with the first option. In our considered opinion, the option that is favourable to the assessee can be adopted for the reason that it lies within the competence of the company to follow one of the options which is in its favour. In this view of the matter, we hold that the assessee is entitled to set off the amount of loss or the amount of depreciation whichever is less in respect of past years against the profits of the year ending on 30th Sept., 1987, relevant to the asst. yr. 1988-89. In this context it must be borne in mind that the expression "financial year" as defined in s. 2(5) of the Companies Act, 1956, is the same thing as "previous year" as defined in the IT Act, 1961. Further, in view of the provisions of the Companies Act, as admubrated in s. 205, the assessee is entitled to give effect to the provisions of cl. (iii) of Explanation to s. 115J as against current years profit by taking into account the lower of the amount of loss or the amount of depreciation in respect of the years in which the company suffered losses after the commencement of the Companies (Amendment) Act, 1960. Further, in invoking s. 115J of the IT Act, we are concerned with the profits of the year ending on 30th Sept., 1987 and the applicability thereto of the provisions of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, but not with any other previous financial year or years. Hence, the second option on which the Circular is based cannot be preferred and the Assessing Officer is directed to base his calculations under the first option. Since the amount of loss or the amount of depreciation, whichever is less, has to be taken into account in terms of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act, after the commencement of the Companies (Amendment) Act, 1960, there is no justification for making the computation from the previous year ending on 30th Sept., 1974, relevant to the asst. yr. 1975-76 and the subsequent years. Such computation cannot be upheld in terms of cl. (b) of the first proviso to sub-s. (1) of s. 205 of the Companies Act. The assessee has furnished before us a working sheet basing its computation from the accounting year 1968-69 (asst. yr. 1970-71) onwards under the first option. Prima facie, its computation appears to be supported by the published accounts P&L a/c and balance-sheet. But the Assessing Officer did not have an opportunity to verify the same. He is, therefore, directed to verify the computation and quantify the amount of loss or depreciation, whichever is less, deducting the same from the profits of the year relevant to the asst. yr. 1988-89 in keeping with the principles laid down in this order. For this limited purpose, the issue is restored to the Assessing Officer.

15. The next grievance of the assessee is that it has not been allowed deduction under s. 80HHC of the IT Act from the book profits. The learned Assessing Officer held that such deduction would be permissible only w.e.f. 1st April, 1989, that is to say, for and from the asst. yr. 1988-89 and not before. Thus he rejected the claim of the assessee. The learned CIT(A) upheld the order of the Assessing Officer.

16. We have heard rival submissions. The claim made by the assessee falls under item (g) of the Explanation to sub-s. (1A) of s. 115 of the IT Act. Sub-s. (1A) was inserted by the Finance Act, 1989 w.e.f. 1st April, 1989. Item (g) in the Explanation thereto was also inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989. Therefore, the authorities have rightly held that the deduction under s. 80HHC cannot be made from the book profits in relation to the asst. yr. 1988-89. Thus, the issue is found against the assessee.

17. The last issue in the appeal in against the inclusion of the profit on the sale of capital asset amounting to Rs. 66,242 in computing the book profit. The CIT(A) held that the inclusion of the impugned amount was in order as the said amount was noticed in the P&L a/c prepared as per Part II and Part III of Sch. VI of the Companies Act, 1956.

18. We have heard rival submissions. Though the profit from the sale of asset is assessable under the head capital gains, in view of the special provisions relating to companies for taxation of book profits as adumbrated in the provisions of s. 115J of the IT Act, which overrides any other provision contained in the IT Act, we hold that the profit on sale of asset shown in the P&L a/c should be reckoned for purpose of computation of book profits. In this view of the matter, we uphold the order of the CIT(A).

19. In the result, the appeal is partly allowed.

ANNEXURE

 

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